Euro Can Bear Fewer Members as Klaus Calls Greeks Victims

By Laura Zelenko -
Sep 26, 2012

The exit of one or more member
states from the euro won’t destroy the monetary union or the
project of European integration, Czech President Vaclav Klaus
said.

And a Greek departure from the currency would be a
“victory” for that country, which has been a victim of the
monetary system, Klaus said yesterday in an interview at
Bloomberg’s headquarters in New York.

The Czech Republic, which pledged to adopt the euro as part
of its agreement to join the European Union in 2004, is under no
official deadline to do so and the question of joining the
common currency is a “non-issue” in the country, said Klaus,
whose second term as president expires in March.

“I don’t think the euro as a currency disappears,” Klaus,
71, said. “The issue is whether all of the 17 countries and
potentially a few others should be or will be in this system or
not.”

European Central Bank President Mario Draghi said July 26
he would do “whatever it takes” to save the 17-nation euro
zone. That challenged the view of skeptics including Kenneth Rogoff, an economics professor at Harvard University in
Cambridge, Massachusetts, who said the same month he expected
Greece to leave the common currency after undergoing the largest
ever sovereign-debt restructuring.

Klaus, who as Czech prime minister oversaw the Jan. 1, 1993
split of what was then Czechoslovakia and the subsequent
adoption of separate Czech and Slovak currencies, said the euro-
zone system is punishing some countries that would be better off
pulling out.

Greece ‘a Victim’

“Greece is a victim of the monetary union,” he said. “It
would be much better for them not to be in the straightjacket.
It would be a victory for them.”

Klaus, an economist who studied in the U.S. and Italy and
worked at the Czechoslovak central bank under communism, served
as finance minister and then prime minister following the 1989
Velvet Revolution that ended the communist regime. He has been
president since February 2003, when he replaced his political
rival, Vaclav Havel.

He called himself a “euro-realist,” saying he supports
European integration while not embracing the shift towards
“unification, centralization, harmonization, standardization”
of the whole continent, including the single currency.

“We accepted with some reluctance the prepared conditions
for our entry” into the EU, Klaus said. “We were aware of the
fact that joining the euro system was one of the conditions. But
we are quite happy with the fact that there was no timing.

No One ‘Pushing’

“So perhaps in the year 2074 we can join the European
Monetary Union as well,” he said. “No one is pushing us.”

The Czech koruna was the world’s best performer against the
euro in the decade ended December 2010, advancing 40 percent.
Investor confidence in the Czech economy is reflected in the
nation’s 10-year local-currency debt, which yields 2.4 percent,
compared with 4.8 percent for similar-maturity Polish bonds and
7.2 percent for Hungary’s.

Regional apprehension about the euro has grown with
Europe’s debt crisis. While euro-zone nations purchase more than
half of the exports of eastern European nations, seven of the 10
former communist countries to join the EU since 2004 have yet to
adopt the currency.

Poland, which three years ago shelved plans to join in
2013, deems the euro “completely unattractive,” Prime Minister
Donald Tusk said in July. Hungary won’t adopt the currency
before 2018, Premier Viktor Orban said in March. Bulgaria has
indefinitely delayed plans to scrap the lev, Prime Minister
Boyko Borisov told the Wall Street Journal in a Sept. 4
interview.

Economy Contracted

The European debt crisis is taking a toll on the Czech
Republic, whose economy contracted in the first two quarters of
2012 amid weaker demand in the euro region, its main market for
Skoda cars, television monitors and other Czech-made goods.
Exports account for about 75 percent of Czech GDP.

The koruna has increased about 2 percent against the euro
this year, compared with 10 percent for the Hungarian forint
and 8 percent for the Polish zloty.

Klaus touted his experience in dissolving Czechoslovakia
into separate Czech and Slovak nations and abandoning initial
plans to maintain a common currency when Slovak officials said
they wanted to devalue after the separation. The split of the
Czechoslovak currency was a non-event because the Czech
government was prepared, he said.

Managed Departure

“It’s technically possible,” to manage the departure from
a common currency, Klaus said. “It’s not true what all the
politicians are saying about disastrous consequences. You have
to do it in an organized way. You can’t allow an anarchy
situation.”

Rogoff, a former International Monetary Fund chief
economist, told Tom Keene on “Bloomberg Surveillance” July 27
that he expected Greece to “ultimately” leave the euro and
that “the real question is what is going to happen to the
broader euro.”

Chances of a breakup of the monetary union by the end of
2013 fell to 47.1 percent yesterday from more than 60 percent in
late July, according to Dublin-based Intrade.com data, after
Draghi gave details earlier this month of a plan announced in
August to buy debt of members including Spain and Italy.

As he approaches the end of his term, Klaus said his most
important legacy is his role as Czechoslovak finance minister
after the fall of communism, when he helped open up the economy,
set a new exchange rate and create new political and social
systems.

“That moment was the change,” Klaus said. “Everything
else is really making small marginal changes, for the better or
worse.”